Updated from 4:05 p.m. EDT
Stocks ended lower Tuesday, despite reassuring comments from
Chairman Alan Greenspan that interest rates would remain low for as long as necessary.
Dow Jones Industrial Average
ended down 48 points, or 0.5%, at 9128, while the
fell 1 point, or 0.1%, to 1753. The
shed 3 points, or 0.3%, to 1000.
"We're priced for perfection," said Peter Blatchford, a trader at Miller Tabak. "
Greenspan said some positive things, but we've run up a long way." Blatchford added that while earnings have been respectable so far, companies are only meeting lowered estimates. "
Second-quarter earnings are going to be fine because we didn't have many warnings, but guidance on the second half of the year is going to be key," he said.
Testifying before Congress on Tuesday, Greenspan said economic activity should improve over the coming quarters, and he noted that the central bank would keep interest rates low for as long as necessary. Treasuries were down sharply on the news, with the yield on the 10-year note rising to 3.93%. Faster economic growth tends to spur inflation, which erodes the value of bonds.
"The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance," Greenspan said. "With the target funds rate at 1%, substantial further conventional easings could be implemented if the FOMC judged such policy actions warranted."
Greenspan said that the "prospects for a resumption of strong economic growth have been enhanced by" balance sheet restructuring in the private sector. While households have taken on more debt in the past two years, debt service levels have gone down and house prices have appreciated sharply, he said. Businesses have also taken steps to shore up their balance sheets and have seen their cost of capital decline.
The decline in bond yields, improvement in stock prices, recent tax cuts and low interest rates should also help to "bolster" the economy going forward, he said. Still, he noted that a pickup in oil and natural gas prices, weakness overseas and continued reluctance from businesses to spend are cause for concern.
In corporate news,
was higher ahead of its earnings announcement due after the bell. Shares ended up 8 cents, or 0.3%, at $24.10. The chipmaker beat expectations, and after hours, shares vaulted 84 cents or 3.5% to $24.94.
weighed on the Dow, however, after an appellate court decided late Monday that a judge didn't have the power to cut a bond Altria's Philip Morris unit was supposed to pay in appealing a $10.1 billion verdict. The company now could be forced to shell out billions of dollars. Altria fell $1.46, or 3.5%, to $40.50.
also fell after saying it would record a charge of $1.1 billion in the second quarter due to weakness in the commercial space-launch market and higher mission and launch costs. Fellow Dow component
Johnson & Johnson
inched down after reporting an almost 27% drop in second-quarter profit.
According to Merrill Lynch's latest fund manager survey, 81% of respondents now expect corporate profits to improve. On average, fund managers project earnings per share will grow 9% in the next 12 months, up from 6.5% three months ago, and these earnings are perceived to be of higher quality than before.
David Bowers, chief investment strategist at Merrill, said fund managers are getting out of staples and utilities and are taking positions in technology, media and other cyclical assets on hopes for an economic improvement. Economic growth and company profit expectations are at their highest since the first half of 2002, he said.
In other earnings news,
reported a slightly greater-than-expected drop in its second-quarter profit. Although the company affirmed its full-year 2003 earnings growth outlook, it also predicted second-half profit will fall below Wall Street estimates and below first-half levels. Shares fell $2.32, or 3%, to $69.06.
could reach two settlements with New York's District Attorney's Office over allegations that it inappropriately helped
brush up its finances,
The Wall Street Journal
Elsewhere in the financial sector,
, the fourth-largest U.S. bank, said second-quarter net profit rose with the help of higher consumer lending and deposits.
Energy trader and producer
filed for bankruptcy protection late Monday following failure to secure support from bondholders and banks to restructure its debt.
reported a decline in earnings, but sharply higher revenue in its fiscal third-quarter results.
In economic news, retail sales rose a slightly higher-than-expected 0.5% last month after being flat in May. Excluding auto sales, the figure rose 0.7% after a 0.1% increase in May. Economists had predicted a 0.3% advance for the ex-auto number.
The New York Federal Reserve's Empire State manufacturing survey fell to 22.6 in July compared with 27.6 the previous month, but was still higher than Wall Street's estimates. Separately, the White House said the federal budget deficit would hit a record $455 billion this fiscal year and climb another $20 billion in 2004, as military operations in Iraq and Afghanistan have proven costlier than expected.
The FOMC said on Tuesday it expects growth of between 2.5% and 2.75% this year, compared with previous forecasts of 3.25% to 3.5%. Still, it expects growth to pick up in the second half of the year. The FOMC also projects growth of 3.75% to 4.75% from the fourth quarter of 2003 to the fourth quarter of 2004.
Overseas markets were mixed, with London's FTSE 100 down 0.6% at 4102 and Germany's Xetra DAX down 0.3% at 3384. Japan's Nikkei closed 0.05% lower at 9751, while Hong Kong's Hang Seng gained 0.13% to 10135.
Crude oil prices were higher in New York. The dollar was higher against the yen and euro.
On Monday, the Dow finished up 57 points, or 0.6%, at 9177. The S&P 500 gained almost 6 points, or 0.6%, to 1003, while the Nasdaq rose 21 points, or 1.2%, to 1754.